Question: Blackbeard's demand functions for grog, , and bread, 2, are (if his income and the goods' prices are such that he buys positive quantities
Blackbeard's demand functions for grog, , and bread, 2, are (if his income and the goods' prices are such that he buys positive quantities of both goods): x = M+P+P M+P P2 and 2p1 x = M-P1-P 2p2 (Aside: As an exercise, you can show that these are indeed the demand functions if Blackbeard's utility function is: U(x1, x2) = (x - 1)(x + 1).) Given Blackbeard's demand functions, which of the following statements are correct? (Note: Multiple answers may be correct.) If the price of grog, P, rises high enough (and nothing else changes), Blackbeard will stop buying grog, 1, completely. If the price of bread, p2, rises high enough (and nothing else changes), Blackbeard will stop buying grog, 1, completely. If the price of grog, P, rises high enough (and nothing else changes), Blackbeard will stop buying bread, 2, completely. If the price of bread, p2, rises high enough (and nothing else changes), Blackbeard will stop buying bread, #2, completely.
Step by Step Solution
3.33 Rating (150 Votes )
There are 3 Steps involved in it
The detailed ... View full answer
Get step-by-step solutions from verified subject matter experts
